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What College Closures Signal for Higher Education

The rising number of college closures and mergers is the latest signal in an alarming trend in higher education. This year alone has seen the closure of five small colleges – St. Joseph’s College, Burlington College, The Memphis College of Art, Grace University, and Marygrove College; the closure of 20 additional University of Phoenix campuses; and the merger of Wheelock College with Boston College; and the acquisition of Kaplan University by Purdue (Inside Higher Ed, July 19, 2017). According to the Department of Education, the number of institutions that have closed a campus/branch or ceased operations completely has risen steadily over the past three year: 300 in 2014, 400 in 2015 and just over 400 in 2016 (Department of Education, 2017a).

UNIV Solution’s Microsoft Power BI’s Dashboard technology offers an interactive visual display of the closings by year and geography (https://goo.gl/7FhDM5).

Moody’s and Bain Capital have for the past 10 years forecasted significant challenges to higher education, but increased state funding, growing international demand for American education, and the expansion of online opportunities to support attainment have all created modest growth in enrollments (Moody’s Investor Service, 2016). These revised forecasts offer growth for many public intuitions and in the endowments of major universities, but small private universities are expected to have the slowest growth and increases in net tuition revenue (due in large part to tuition discounting), partially explaining some of the financial pressures experienced by the higher education sector.

For context, the National Center for Education Statistics’ latest reports showed that about 3.6 million high school students will graduate this year, and the most recent published rate of students graduating and enrolling in college was 69.2%. This will bring the total number of students in American colleges and universities to 20.4 million this fall (an increase of 5.1 million or over 30% from 2000). So, if enrollments are growing, why the rise in college closures?

First, the largest number of closures remain in the for-profit sector, accounting for 89% of all closures from 2014 to 2016. These closures can be explained by a variety of factors, due in part to increased regulation, price conscious consumers, and a series of management decisions that undermined the financial integrity of several institutions.

Second, cost continues to remain a significant barrier to many potential enrollees. During the last calendar year, the average cost of education increased across all major sectors of higher education – 5% at public two-year institutions, 4.5% for public four-year institutions, 5.2% in private non-profit four-year institutions, and 1.4% for private for-profit four year institutions (Department of Education, 2017). These increases in cost often fail to offset structural deficits in small institutions, and Moody’s has suggested that the number of small non-profit institutions needing to reduce operating expenditures in order to stay financially viable has been steadily increasing over the past three years (Moody’s Investor Service, 2016).

Responding to these trends, the latest survey of university business officers revealed significant differences in their beliefs around the necessity for change and the reallocation of resources. Seventy-one percent of responding chief business officers predicted significant turmoil in the sector and expressed increasing pessimism about the likelihood of new revenue streams which has led to a renewed focus on the need to reduce operating expenses.

In conclusion, despite a growing number of students enrolling in American institutions, rising costs and structural deficits have placed tremendous pressure on smaller institutions. Increased state funding has reduced some pressure on public four-year institutions, though that pressure varies from state to state. Future closures may very well depend less upon enrollment growth than institutions’ ability to balance tuition and rising operational costs.

References

Department of Education (2015). Digest of Education Statistics: 2015. Retrieved from: https://nces.ed.gov/programs/digest/d16/tables/dt16_105.20.asp?current=yes.

Department of Education (2017a). The Federal Student Aid: Closed School Weekly/Monthly Reports . Retrieved from: https://www2.ed.gov/offices/OSFAP/PEPS/closedschools.html.

Department of Education (2017b). Postsecondary Institutions and Cost of Attendance in 2016–17; Degrees and Other Awards Conferred, 2015–16; and 12-Month Enrollment, 2015–16. NCES 2017-075.

Inside Higher Ed. (2017). 2017 Survey of College and University Business Officers. Inside Higher Ed.

Inside Higher Ed (July 19, 2017). The Culling of Higher Ed Begins. Retrieved from: https://www.insidehighered.com/news/2017/07/19/number-colleges-and-universities-drops-sharply-amid-economic-turmoil

Moody’s Investor Service. (2016). Outlook for US Higher Education:

Washington Higher Education Secretariat. Retrieved from: http://www.acenet.edu/news-room/Documents/Moodys-HEOutlook-Secretariat.pdf